If Brian Halla could attach neon lights to his new SUV, the flashing message would dare high-tech executives to quit their hand-wringing and show more faith in the industry's ability to renew itself.
And just as the Hummer, the civilian version of the army's HumVee, dwarfs most vehicles on the road, National Semiconductor Corp.'s chief executive believes the battered high-tech sector is on the cusp of another major expansion that could see semiconductor sales more than triple from the record $204 billion posted in 2000.
"The last boom cycles took the semiconductor industry from $5 billion to $26 billion and $204 billion," said Halla, acknowledging that he bought the pricey lemon-colored Hummer as a tangible symbol of his confidence in the recovery at hand.
"The next boom cycle for the chip industry alone will make the dot-com boom pale by comparison. It will be over $1 trillion, and the demand will be driven by billions of people consuming hundreds of devices per user," he said.
A maverick to the core, Halla is renowned for his independent and often unorthodox outlook combined with a forceful personality that's helped him push National into becoming one of the top-three analog semiconductor companies in the world.
Calculating a comeback
The high-tech world will soon find out about the latest project on which Halla has turned his imagination and National's resources. Halla on Nov. 19, in a Comdex speech sandwiched between presentations by Microsoft Corp.'s Bill Gates and Hewlett-Packard Co.'s Carly Fiorina, plans to tell the world when the industry will begin to accelerate toward the next boom. Using mathematical equations created at National and data collated by his top scientists, Halla has calculated not just the year but also the month when business conditions will start to recover.
"What's a bigger story than what's on everybody's mind, which is when do we get well as an economy or an industry?" Halla asked. "If you can come up with an equation and you have all of these exact data points from the past going back to 1974, you should be able to predict when the upswing will come again."
But even if Halla and his team were able to correctly predict the next market upturn, what would this mean for National itself? Like Halla at Comdex, National will still be stuck between bigger, deep-pocketed rivals. Its competitors read like a who's who in the semiconductor industry, including companies like Analog Devices, IBM, Intel, Linear Technology, LSI Logic, Maxim, Motorola, Philips Electronics, NEC, STMicroelectronics, Texas Instruments, and Toshiba.
Also, while National, Santa Clara, Calif., is a major player in its favored analog market, it still trails competitors like Texas Instruments and ST-Microelectronics. Meanwhile, in the communications sector, National would have to face off against hungry rivals like Intel, which is seeking revenue opportunities outside its traditional microprocessor market.
Analysts said National may even have to exit certain markets that are not considered core to its analog operations, including the DVD processor sector.
"We expect unit demand [at National] will remain strong for DVD players, but National is not focused on DVD processors long term," said Bobby Burleson, an analyst at Investec Inc., New York. "We believe this will force National to exit the DVD processor market as more specialized suppliers like ESS Technology and Zoran continue to raise the performance bar with increased chip integration and functionality."
Halla remains undaunted by National's slightly weak exposure in the digital market. In any event, the time and resources spent on divining where the market is headed may enable National to better prepare for an upturn he considers imminent.
"People may say, 'Is this guy nuts? He should be worrying about his company,' but the important thing to us is what we've seen as a knee-jerk reaction in the semiconductor and technology industry," Halla said. "We're all saying 'time to hunker down, let's lay off more people, let's cut some projects.' "
Added Halla, "If I know the time between now and getting healthy, then I can [determine] whether to risk losing money for a couple of months longer than I normally would have. This is just an attempt to get more quantifiable predictability into our business."
However wild, that outlook may be justified by developments in the industry that show the analog market growing faster than the overall semiconductor industry, according to analysts. In a recent report, Deutsche Bank Securities Inc. analyst Ross Seymore noted that the trend "towards portability and connectivity will drive growth for analog semiconductor companies to above that of the semiconductor industry as a whole."
Notwithstanding Halla's excursion into forecasting, he has pegged the company's future viability on more solid ground. Since 1996, National has been weaving together a tapestry of products that is steadily turning it into a formidable player in the semiconductor market.
Today the company is clearly an analog-IC supplier with a side interest in digital products. It generates 75% of its revenue from the analog market and the remaining 25% from the sale of products such as super I/O for motherboards, system-on-chip solutions for Internet appliances, DSP networking components, and DVD player processors.
"National was a top-five supplier for every area of analog tracked by Gartner Dataquest," Investec's Burleson said. "These proprietary products will allow National to grow more defensive revenue positions in handsets, flat-panel displays, and other applications."
Leveraging analog's strengths
Although National continues to dabble in the digital-IC market, it's in areas like displays, power management, and other applications that go into medical imaging that the company hopes to continue distinguishing itself, according to Suneil Parulekar, senior vice president and general manager of the company's analog products group.
That strategy is even evident in its manufacturing program. National's three fabs now concentrate on producing proprietary analog products, while foundry partner Taiwan Semiconductor Manufacturing Co. Ltd. gives it the needed technology edge in digital products.
"We're using our analog competencies to drive business across all market segments and experiencing strong growth in the display area," Parulekar said. "In the power management area, we're coming out with new architectural technology to take care of future needs."
Some of these new products can't come too soon. National's sales have dropped with the rest of the industry, although it has managed to record sequential growth each quarter since the middle of 2001. In the quarter ended Aug. 25, sales rose 24%, to $420.6 million from $339.3 million in the year-ago quarter, but were virtually unchanged from the $419.5 million posted in the preceding three-month period.
To ensure that it can continue to fund its expenses and also make the strategic investments needed to cultivate new products, the company is sitting tight on its nearly $800 million cash hoard, according to Lewis Chew, chief financial officer.
"Our margin is holding up very well, although in this kind of environment, anything can come under pressure," Chew said. "The spring is wound pretty tight right now, but we're maintaining our R&D investment in key areas like wireless and power management."
If the market turns around quickly, National expects to rapidly swing into action with some targeted acquisitions, but until then, Halla aims to keep his Hummer around reminding everyone of the industry's resilience.